Dollar, commodity currencies stung by global gloom

By Shinichi Saoshiro

TOKYO (Reuters) - The dollar and commodity currencies like the Aussie were on the defensive on Wednesday as another stormy 24-hour session for financial markets forced investors to unwind well established trades, sending the euro and safe-haven yen higher.

The dollar was up 0.5 percent at 119.89 yen , off a low of 119.25 but still sharply down from an overnight high of 121.265. The euro was steady at $1.1299 after rallying 0.9 percent on Tuesday.

Stocks and oil tumbled on Tuesday, and U.S. treasuries rose, as weak Chinese manufacturing data rekindled global growth fears.

A report showing softness in U.S. factories added to the gloom, sending the S&P 500 down 2.5 percent and U.S. crude tumbling 7.7 percent.

"Currencies will continue to closely watch equities, with the yen and euro boosted by unwinding of carry trades in such times of risk aversion," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo.

Speculators and investors had sold low-yielding yen and euro to buy higher-yielding currencies and shares in a "carry trade" strategy that had to be suddenly unwound as a worsening outlook for global economy spelled weakness for equities.

"Short-term focus will be on the U.S. ADP employment report due later today and the European Central Bank meeting tomorrow. There are hopes that the ECB may ease further in light of recent developments, which could improve risk sentiment," Kadota at Barclays said.

The markets will study the ADP employment report as a rough predictor of the more comprehensive U.S. non-farm payrolls due on Friday.

The dollar index was steady at 95.542 after an overnight loss of 0.6 percent.

Struck down by the slide in oil and other commodity prices, the Australian dollar was down 0.2 percent at $0.7008 after hitting a six-year low of $0.6998 earlier in the session.

The Canadian dollar, another commodity currency buffeted by gyrations in oil prices, stood little changed at C$1.3186 per dollar after losing 0.9 percent overnight. The retreat put the loonie closer to an 11-year low of C$1.3353 struck last week.

Earlier in the week, the Canadian dollar had gained some respite as the price of crude oil - a key export for Canada - temporarily rebounded from recent lows amid a brief lull in global risk aversion.

(Editing by Shri Navaratnam)